Don't let taxman wreck my last days

Life has taken a cruel turn for Andrew Evans. At 46, he is suffering from severe multiple sclerosis and has been told by his doctor that he has only three years to live.

Knowing that he can expect his condition to become worse within months, Andrew is anxious to spend money on making the precious time he has left with his wife Sally, a teacher, as happy as possible.

That means taking advantage of a £53,000 pension he has carefully built up at work over 20 years. He has told his pension provider that he wants to take out the money.

But he has been thwarted by the Inland Revenue.

Andrew's situation is unusual, but it is not unique. It highlights a flaw in the pension laws that advisers and MPs believe should be corrected as a matter of urgency.

In 1977 Andrew, a chartered surveyor, took out an occupational pension with his then employer, Coventry City Council. In 1990 he switched his pension to National Provident Institution (NPI) via a socalled 'Section 32' pension buyout.

And there lies the problem. The rules that govern his accumulated pension are determined by the Inland Revenue's occupational scheme guidelines, and they are brutal.

Under Inland Revenue rules that embrace Section 32 buyouts, the Revenue decrees that in the event of 'serious ill-health', the full value of a plan, minus a small tax charge, can be taken only if the holder has less than a year to live.

But because Andrew has been told that he has three years left to live, he can only gain access to his fund if the majority of the proceeds are then used to buy a pension annuity, and that is something he does not want.

HE has been told repeatedly by NPI that it is bound by Revenue guidelines and cannot meet his request for a fair pensions deal. But Andrew refuses to believe that his condition and his drastically shortened life-expectancy do not count as 'serious illness'.

In desperation, he wrote to the Revenue two months ago to confirm that this was the case. He is still waiting for a reply.

Andrew is a partner with a firm of surveyors in Yeovil, Somerset, and lives with Sally, 49, in Hatch Beauchamp, near Taunton.

He says: 'My voice is failing and I am anxious to sort things out while I am still able to communicate properly. If I could take most of my pension in a lump sum, I would want to do that while my wife and I are still able to enjoy it.'

So far, the Revenue has been immovable over its rules.

A spokeswoman told Financial Mail that it had dealt with cases like Andrew's before. She said: 'The basic guidelines say that a person has to have a year to live or less before we would give a ruling that allowed so-called full commutation of the pension.

'We have to stick to these rules rigidly, otherwise it would be impossible to know where to draw the line. If we allowed three years' life expectancy, then why couldn't we allow five or seven years?'

NPI rightly claims its hands are tied by the Revenue ruling. Spokeswoman Julie Morgan says: 'This is a dreadful situation, but unfortunately, according to the Inland Revenue guidelines, Andrew Evans does not qualify under the serious illness definition. And we are bound by these rules.'

But last week an MP condemned the Revenue's attitude.

Steve Webb, the Liberal Democrats' spokesman on social security, who represents North Avon, said: 'We need to see some humanity from the Inland Revenue. It is notorious for being unbending and unyielding over its rules.'

Webb urged the Revenue to heed calls for a more sympathetic response to special circumstances. 'I hope the Inland Revenue decides to show some sympathy over this case,' he said.

'To do so would cause it no great financial loss but it might make Andrew's last years more comfortable. I hope common sense will prevail.'

Andrew's financial adviser, Nick Byrd of Nick Byrd and Associates in Leamington Spa, Warwickshire, is working hard to find a way round the Revenue's ruling.

He is even approaching other pension companies to see if they will take a more sympathetic approach.

Byrd says: 'It is desperately unfair that someone who is terminally ill should be penalised because of nonsensical rules dreamed up by some civil servant sitting in a cosy building somewhere in London.

'The Inland Revenue is being unnecessarily rigid about how it applies these rules.'

John Briggs, an adviser with Chartwell Investment Management in Bath, Somerset, recently had a client in similar circumstances to Andrew's.

The client, who had cancer, was told he had about 15 months to live. Eventually, after a long battle with the Revenue and a new letter from the client's doctor saying there was only a 10% chance he would survive the year, the Revenue waived its ruling and allowed him to take his pension as a lump sum.

Briggs says: 'How can a life expectancy of three years not constitute serious illness? The Revenue tends to be very stubborn over cases like these, but at the very least it should respond to the problem quickly.'

He says the Revenue should ask itself the question, 'What is fair in this situation?

'Then surely it would come to the conclusion that it is only fair that Andrew and his wife receive the money while there is still time for them to enjoy it.'

Financial adviser Alan Steel of Linlithgow-based Alan Steel Asset Management says: 'Andrew's plight underlines the farce that pensions have become because of ill-conceived and ludicrous rules introduced by successive governments.'

Andrew hopes his case will at least trigger a re-examination of the way those with serious illnesses are treated by the taxman.